London Developers Raise Their Bets on Future Office DemandPatrick Gower
Central London developers are increasingly willing to start office construction without tenants in place, betting that today’s surging demand won’t fade.
Companies started 31 projects in the six months through March, the second-highest amount in 20 years, according to a survey by Deloitte LLP. Of those, 22 had no tenants at the outset. New construction jumped by 24 percent.
“We expect further rises in rents and more pre-let deals on schemes under construction,” said Anthony Duggan, partner and head of real estate strategy at Deloitte. “We expect the development pipeline to continue to increase as developer confidence translates to more active construction sites across London.”
A dearth of development during the financial crisis has left London companies competing for a dwindling amount of space. Central London office rents will climb the most since 2000 this year, according to BNP Paribas SA’s real estate unit.
London’s biggest office developers include British Land Co., builder of the skyscraper nicknamed the Cheesegrater, and Land Securities Group Plc, which developed the tower known as the Walkie Talkie and owns the property in a partnership with Songbird Estates Plc.
The new projects more than doubled the development pipeline to 9.5 million square feet (883,000 square feet). Of the space being built, 37 percent has been rented in advance.
“We still anticipate any development commitments beyond the current programme will be based on pre-lettings,” Robert Noel, chief executive officer of Land Securities, said in a statement Tuesday.
The 10 construction starts in the City of London financial district accounted for 39 percent of the new work, the most of any area. Central London areas in the survey included the West End, the Docklands, Midtown and King’s Cross.
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